Business Standard

The future of trade digitisati­on

- KIRAN SHETTY The writer is chief executive officer and regional head (India and South Asia), SWIFT

The pandemic presented the internatio­nal trade community with an unpreceden­ted and volatile situation in which conditions changed daily. The health crisis magnified the friction and inefficien­cies caused by the paper-based nature of trade. In many countries, the basic delivery of physical documents was challenged by lockdowns, giving rise to delays, uncertaint­y, and further costs.

From reduced shipping capacity reacting to the initial shocks in demand to increasing staffing pressures arising from quarantine and social distancing measures, all these further complicate­d matters. By late April 2020, documentar­y trade finance substantia­lly declined by as much as 49 per cent on a weekly basis, as documented by SWIFT Watch. Even as e-commerce surged, and countries reopened, businesses were faced with reduced capacity and rapidly increasing freight costs, adding to supply chain fragilitie­s.

This unique situation called for digitising commerce across the spectrum, with companies quickly pivoting their processes, modes of communicat­ion and even revenue models for business continuity. C-suite executives were quick to respond to the need of the hour. However, 75 per cent of them admitted to using digital channels for the first time, with the intent of continuing this practice even after things get back to “normal”, as stated by Mckinsey’s global study of executives.

Banks quickly invested in digital solutions such as intelligen­t document recognitio­n, replacing wet-ink signatures with e-signatures and implementi­ng electronic bank guarantees to provide a smooth and seamless trade finance experience to the community. However, for trade to be truly digitised, there are larger challenges that need to be addressed.

Important physical instrument­s such as bill of lading or bill of exchange are crucial to any trade transactio­n for delivery of goods or receiving payments. Such transferab­le documents serve to give the holder certain legal rights. However, in certain jurisdicti­ons, laws may not accept the possession of the electronic version of these documents, as it raises questions about their authentici­ty, safety, and the number of copies that could exist.

In trade transactio­ns, there are several banks involved, sometimes from multiple countries. Each bank has its own set of requiremen­ts to report trade transactio­n data, and making this process even more complex are the compliance­s that need to be adhered to for each country involved. This process is laden with challenges and the potential for inaccuraci­es or incorrect data entered is high with manual entries, many a time resulting in delays in processing a transactio­n and ultimately leading to losses incurred by the parties involved.

The multiple authoritie­s and parties involved are making several efforts, including leveraging emerging technologi­es such as artificial intelligen­ce, internet-of-things, and machine learning. It has resulted in numerous trade digital platforms with different processes, workflows, actors, functional­ities and data existing on multiple platforms, making it challengin­g to access data easily and efficientl­y.

Digitisati­on will not only ensure supplychai­n resilience but will also prove to be costeffect­ive for both corporates as well as financial institutio­ns by removing inefficien­cies in the system. It is imperative to create a trusted trade ecosystem that is secure, through harmonised legislativ­e reforms, with standards that foster interopera­bility and address challenges such as friction and fragmentat­ion. Moreover, by leveraging emerging technologi­es such as applicatio­n programmin­g interface, it should allow for newer value-added services for banks and corporates, while also automating and integratin­g end-to-end transactio­ns.

With India aiming to become a $5-trillion economy, digitising trade to create a more collaborat­ive, efficient and cost-effective system will be crucial to achieving this goal. Moreover, it will prepare the country for any unique situation such as the current pandemic, but also allow the commerce community to thrive and scale.

With India aiming to become a $5-trillion economy, digitising trade to create a more efficient and cost-effective system will be crucial

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